European Court of Justice ruling (indirectly) on what cannot be used in Insurance Risk Models

March 1, 2011 11:58 am by Markus.

Insurers cannot charge different premiums to men and women because of their gender, the European Court of Justice (ECJ) has ruled.

I’m not sure what to think of it. For one, insurance is not about fairness; it’s about risk. An insurance company should be able to use whatever reliable information for determining the true risk to help price policies. From what I’ve read it seems that young men cost ~50% more to insure than young women. This might not be true on an individual level, but it is true across the entire pool people. On the other hand, if all reliable information could be used, then health insurance would naturally be more expensive for people with, e.g., known genetic disorders if it were purely about risk. That wouldn’t be fair either. Legislating what can and cannot be used in what circumstances will be a hard trade off. In the intermediate term this ruling will probably lead to models that are using all sorts of things to work around this ruling in order to get an adequate risk score.

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